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Coffee prices boom & bust: a historical perspective

From the January 2012 issue.

As 2011 closed off, coffee prices showed signs of cooling down, with consumption continuing to grow as production figures drop. Scott Duke Harris takes a historical look at prices movements to draw what lessons can be learned.

Coffee economics pricesViewed from a distance – from Jupiter, say – the coffee industry of planet Earth may appear to be a cheerful phenomenon of growth, ever onward and upward.

But the global forest is one thing, the regional plantations quite another. Perspectives also diverge within the various sectors of the industry’s value chain, and among speculators as well. To coffee growers, traders, roasters and retailers – as well national policymakers – the industry is rarely consistent and predictable. Charts that describe production in various regions can look as jittery as the EKG of a patient enduring cardiac arrest.

Not that everybody thinks this is a bad thing – certainly not commodity traders. “Volatility helps the business as customers look to hedge or punt,” explains Kona Haque, a commodity specialist with Macquarie Bank in London. “But it does make my role in predicting prices quite tough!”

Boom and busts are facts of life in the coffee industry. Heavy rain, harsh frost, disease, political turmoil, gyrating markets – all pose risks that must be addressed for businesses to succeed. Volatility may be an evergreen topic, but interest in it also intensifying – one reason the International Coffee Organisation recently hosted a conference expressly to discuss strategies for coping with all the ups and downs.

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